THE DEFERRED SALES TRUST
Jul, 2010
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Have you ever known someone who was reluctant to sell property or business assets because of the capital gain taxes that would be owed upon the sale's conclusion? Perhaps you yourself have been in that position. Clearly, a Section 1031 exchange can provide a means for many to defer those taxes by investing in like-kind property. But what if the individual no longer wants to own like-kind assets or property? Is there another way to deal with these soon-to-be even more onerous taxes when assets are sold? The answer may be the Deferred Sales Trust.
Not only could this tax deferral tool save thousands of dollars, but
the client also has the chance to earn profit on the 
money that would have been paid to the IRS. The
process starts in the same manner as any sale--find a buyer! The client
sells the property/asset to a trust that is owned by a third party
company. The trust then makes the actual sale to the buyer that you
located previously. After that, the trust pays you on a schedule that
you design. The alternatives for how and when you receive payments are
extremely flexible. You pay taxes on only the capital gain received in a
particular year, so the tax can be deferred out many years.
Another aspect of a DST is the ability to borrow against the assets
of the trust while the total amount continues to generate income.
Imagine this scenario--you place $500,000 into a DST that earns a nice
return. You borrow $300,000 against the assets of the trust and purchase
an income-producing asset such as a farm or a multi-family rental
property. Using the income from the property, you pay back the loan to
the trust. Eventually you wind up with the assets of the trust PLUS the
income property free and clear!
When compared to a direct sale that is taxed, the Deferred Sales
Trust can potentially generate more money over the long run. If you
would like more information or would like to run an illustration based
on your own or your client's circumstances, please visit my DST website.
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The information above should not be considered tax or legal advice.
You are strongly advised to consult with your trusted legal and/or tax
advisor before entering into a Deferred Sales Trust.